CPA Regulation (REG) : Taxable Gifts

Study concepts, example questions & explanations for CPA Regulation (REG)

varsity tutors app store varsity tutors android store

Example Questions

Example Question #1 : Taxable Gifts

Which of the following payments requires the filing of a gift tax return?

Possible Answers:

$20,000 cash to a friend.

$20,000 tuition payment to XYZ College for a friend.

$20,000 medical payment to a doctor for a friend.

$20,000 to a political organization.

Correct answer:

$20,000 cash to a friend.

Explanation:

Payments made on another’s behalf paid directly to a health care provider for medical care or to an educational institution are not considered gifts for tax purposes. Additionally, the contribution to the political organization, while non-deductible for tax purposes, does not qualify as a gift (though there are limitations on amounts that may be contributed). Only the cash payment to the individual would require the filing of a gift tax return.

Example Question #2 : Taxable Gifts

On July 1, Year 11, Vega made a transfer by gift in an amount sufficient to require the filing of a gift tax return. Vega was still alive in Year 12. If Vega did not request an extension of time for filing the Year 11 gift tax return, the due date for filing was:

Possible Answers:

March 15, Year 12

April 15, Year 12

June 15, Year 12

June 30, Year 12

Correct answer:

April 15, Year 12

Explanation:

The gift tax return date is the same date as individual tax returns, April 15 of the subsequent year of the transfer.  

Example Question #3 : Taxable Gifts

Parents lend $2,000,000 to their child to start a business. The loan is interest free and is payable on demand. The imputed interest is subject to:

Possible Answers:

The gift tax each year the loan is outstanding.

The generation-skipping transfer tax, but not the gift tax.

An excise tax.

The gift tax only in the year the parents lend the money.

Correct answer:

The gift tax each year the loan is outstanding.

Explanation:

In this instance, the parents gave an advantageous loan to their child, the sort of which they would not give to a third party at arm’s length. As a result, the “lost” interest income (had they made a loan to another party at arm’s length) each year is treated the same as a gift. 

Example Question #4 : Taxable Gifts

Assuming tax law in effect during 2019, what amount of a decedent’s taxable estate is effectively tax free if the maximum applicable estate and gift tax credit is taken?

Possible Answers:

$0

$15,000

$11,400,000

$4,500,000

Correct answer:

$4,500,000

Explanation:

The max amount that can be transferred pursuant to a death tax free is $11,400,000.

Example Question #5 : Taxable Gifts

Of the following, which is a valid deduction from a decedent’s gross estate?

Possible Answers:

Income tax paid on income earned and received after the decedent’s death

Unified credit

Expenses of administering and settling the estate

Federal estate tax

Correct answer:

Expenses of administering and settling the estate

Explanation:

Expenses of administering and settling the estate are valid deductions from a decedent’s gross estate.

Example Question #6 : Taxable Gifts

Of the following, which transfer of money would require filing a full gift tax return?

Possible Answers:

Direct medical payment to a medical facility for a family member

Contribution to a political group

Payment of $30,000 cash to a friend

College tuition payment directly to the university

Correct answer:

Payment of $30,000 cash to a friend

Explanation:

As of 2020, the exclusion amount for a gift tax is $15,000. This means that funds in excess of $15,000 not excluded, such as a medical payment or tuition, must have a return filed for them.

Learning Tools by Varsity Tutors